The invention disclosed herein relates generally to computerized systems and methods that implement investment strategies and processes and use financial measurements to manage financial portfolios relative to market volatility. More specifically, the present systems and methods relate to a computer system and method implemented on machines connected to a network and using software for automatically adjusting the exposure of equity in a portfolio in response to changing market volatility data.
Market fluctuations create risk. While the extent of these fluctuations generally depends on the type of market, most markets will have periods where they are alternating between precipitous drops and record peaks. Considered broadly, fluctuations in the market can be predictable. But when considered with an increasing requirement for precision, they become unpredictable, regardless of what is being traded on the market. When fluctuations reach high levels, a market may be considered volatile. A typical asset manager may seek to exploit the volatility using any number of known techniques, but the number of market players exercising these techniques can increase the risk without magnification of the financial return. For example, if a portfolio is decreasing in value, the portfolio manager may seek to minimize risk by selling much of the portfolio's investments, thereby potentially causing the value of the underlying instruments to further decrease in value. Widespread activity of this kind can thus cause dramatic swings in the market for the instruments.
As such, there is a need to better manage portfolios and provide protection of long term investments through high fluctuations in portfolio values. There is a need to provide a computerized system and method for reducing the risk of assets in a portfolio regardless of how volatile markets become. There is also a need to manage one or more portfolios to manage risk, preferably without changing the position in the underlying assets themselves and thus without causing further market volatility.